End to HDL hangover hovering?

Friday, 16 September 2011 03:13 -     - {{hitsCtrl.values.hits}}

In what is likely to be major breakthrough to the litigation-filled long-drawn-out impasse at Hilton Colombo-owning company Hotel Developers Plc (HDL), a proposal for an amicable win-win settlement has been presented to the Treasury.

Sources said that as per the proposals with four options studied by Treasury, major shareholder Cornel Perera (owning 56% but held in trust by the State at present) and the Japanese investors (holding 27.5%) have expressed willingness to exit HDL as part of the proposal, a forerunner to what is dubbed as a settlement “both financially and legally to the satisfaction of all concerned parties”. Additionally, an understanding has been reached for all legal issues to be sorted out amicably and conclusively in agreement with parties at litigation, including Nihal Sri Ameresekere. Wrong doings if any by parties must and can be regularised as agreed in principle by all parties and lawyers representing them via the Supreme Court in the spirit of an amicable settlement.

Cornel and Japanese investors (Mitsui and Taisei) exiting will free up an 83% stake in HDL and along with the Treasury stake, it will bring the total to 92.5%, which would enable the Government to resell the entire holding for bidding via the Colombo bourse.

It has been said that when clean-sheeted through the Supreme Court, approximately 92.5% of a debt, litigation and encumbrance-free HDL could be marketed for any new foreign investor from leisure industry or local conglomerates or a consortium of both.

HDL’s market capitalisation is Rs. 5.6 billion ($ 51 million) based on its yesterday’s closing price of Rs. 125. This valuation is despite Rs. 12 billion liabilities including a Rs. 10 billion long-term loan outstanding and Rs. 10.3 billion retained losses as at 31 March 2010. Trading on the default board for the past 10 years, HDL’s 52-week highest share price is Rs. 165.

If an amicable settlement is reached, proceeds from the sale of shares can be partly used to repay $ 39 million outstanding loan plus interest to the Treasury, as well as pay off Cornel and Co and Japanese shareholders and those who have filed cases in public interest.

Those who have been tracking the HDL-Hilton saga opined that unless a deal of this nature is struck, it was very unlikely that HDL would repay its liabilities, including to the State. The hotel of HDL badly needs an upgrade as well as funds for expansion, for which are hard to come by in the current scheme of things.

Company analysts estimate a debt and litigation free HDL would immediately get a massive valuation rerating for the better. Some even claimed that the 92% stake could fetch $ 200 million though this couldn’t be independently verified.

Tourism industry analysts however said that given the post-war rebound in tourism, several global hotel chains are keen to set up shop in Sri Lanka. In this scenario, they are likely to favour an existing opportunity like HDL, which has extra land to expand.

Validating the Government’s indications that several top seven and five star brands are keen on Sri Lanka, analysts said global giants such as Four Seasons, Ritz Carlton, Grand Hyatt or top Singapore or Malaysia-based Asian hotel operators who have partnerships with these brands are likely contenders if HDL is up for sale.

The latter category of investors work with multiple brands, hence Hilton can continue if it wishes to, whilst the new owner can put up a new facility on the adjacent land encompassing the poolside.

HDL’s landmass is two acres and the original project included a third tower and total room strength of 750, as opposed to around 400 at present. Thanks to the Japanese architecture, Hilton is also unique as it was built on what is known as a ‘non-ageing’ concept, which makes it more attractive to investors.

Apart from regional or international interests, a debt and litigation-free HDL will be a magnate for Sri Lankan conglomerates as well. For example, leisure giants such as Aitken Spence and Hemas do not have a city property, whilst industry major JKH would consider fresh opportunities in Colombo as well.

The HDL Board under the chairmanship of Tiru Nadesan of late has also been successful in checking the flight of excessive revenue/foreign exchange by negotiating better or market terms on management fees and other levies.

This, analysts said, would be reflected better in 2011/12 accounts of HDL, whilst improving occupancy levels and pick up in overall leisure and corporate markets have boosted yield at Hilton.